Friday, January 14, 2011

Starting a Budget From Scratch

FrontLedgerAfter last week's post about our budgeting categories, I received an email from a reader with these questions:
"Can you offer any advice on how to go from using credit cards for EVERYTHING to go to using cash and credit card for only bills and gas? Where did you begin? How did you create a budget?"
Two years ago, when my husband returned home from his deployment, we realized that we needed to crack down on our spending in order to prepare for future tight times (i.e. grad school!). In his first month home, we spent around $600 on food (groceries and eating out). WOAH. That's for two people (plus whoever we had over for dinner). We were a little shocked.

So we sat down and worked out a budget. Here's how we began--the budget-from-scratch version!

First, we looked at our previous spending by dividing it into categories: groceries, eating out, gas, car expenses, and so on. Every penny spent was placed into a category.

This gave us a starting point for our budget. We knew we needed to cut down on our spending, but we also wanted something that we could realistically stick to. So we decided to decrease our spending gradually.

Our first budget was pretty loose. We set goals slightly lower than what we had currently been spending. At the end of the first month, we looked at each category again and evaluated how we had done. As we learned ways to cut our spending month by month, we also tightened our budget. I think it took around 4-5 months before our plan resembled our current budget. Working into a tight budget slowly prevented us from getting discouraged in the beginning.

Our budgeting tools were not complicated--just a ledger, paper, pen, bank statements, and a calculator!

The Ledger
We bought this ledger at Wal-Mart and it has done the job!
At first, we attempted to stay within budget while using our debit card. However, this requires diligent and frequent balancing of the checkbook and monitoring of each category in order to know how much money you have left over to spend. Inevitably, we assumed we had more wiggle room than we did, and we would go over budget.

At this point, we attempted to use the online version of Quicken (now called Mint?) to track our expenses. After you tweak it a bit, it will categorize for you automatically. But certain numbers kept being ever-so-slightly off, which drove me crazy. We went back to numbers on paper. You know I'm old-fashioned!

Since we were consistently going over budget, we started contemplating the move to cash. My husband, however, was skeptical as to how he would carry around "cash envelopes" without having to move to some unmanly, bulky sort of wallet.

I'll share the solution to that looming problem and more on the logistics of moving to cash envelopes next week! Try not to bite your nails in suspense. I know you're on the edge of your seat. *wink*

I also wanted to throw this out there....I am no budgeting expert! There are many ways to set up and execute a budget, I'm just sharing what has worked for us.

What tips for setting up a budget (and losing the credit cards!) would you give my reader?

Linked to Frugal Friday.


  1. We use the envelope system (bought a wallet from Dave Ramsey online) for cash categories like Dining Out, Groceries, Leisure, Clothes, and Misc. This keeps me in check, although I am really trying to crack down this year - I can be unintentionally sneaky when I'm the main one handling our finances and buying everything.

    The best thing that helps me to organize is the online envelope system at I looked around for a reasonably priced envelope system and this was my favorite! I'm just such a visual person that the Microsoft money program I was using on my computer wasn't cutting it. I suggest this to anyone trying to work on a budget - especially with cash.

    I keep track of our savings, checking, and then I made a cash account that I transfer into to keep up with cash purchases.

    Check it out...there's a free plan as well as the other reasonably priced options.

    Feel free to ask me if you have any questions. :)

  2. Ok, I am on the edge of my seat waiting to hear how you do this!! Great post :)

  3. Oh, and your neat ledger almost makes me want to go back to the pen and paper version :) We (I) have a spreadsheet on our computer, and that lets us track how much we have in each category (which I'd love to know how you track using the ledger system).

  4. Alicia! I can't wait a whole week!!!

  5. That is so good. hubby and I need to do a better job budgetting, and I have tried to get him to go back to cash as well. Still working on that.

    One thing I did that really helped was to get a binder which I separated out into different catagories. I filed all our bills and things in there. I got a separate one for each checkbook and then filed bank statements. Then I looked at our bills and when they were due and separated them between when hubby gets his checks. That way we didnt save all our bills for the end of the month and have no money for food :S This was very helpful

  6. very very helpful. I am actually really looking forward to this tracking every penny spent this year so next year I can plan accordingly. I have a general idea from the last two years when we start to spend more--summers and holidays. The winter months from Jan-March are super frugal, but come April-August, we have a ton of birthdays and family events and the unexpected expenses seem to pile up.

    Great post, as usual, Alicia!

  7. Great info! We use to do a cash budget for most everything, but have let it slip a lot over the last year. I think we are thinking "we don't have debt other than house and student loan, so it's ok". But since we are trying to actively pay off one of our mortgages, we just talked the other night about buckling down again. Our system looks a lot like yours - just all on the computer. :)

  8. I'm currently tracking all of my spending on my blog, and using a cash budget. Tracking makes such a difference, doesn't it? I don't think I'd have nearly the same momentum toward my savings goals if I wasn't writing it down and paying cash! I wrote about budgeting this past Monday here:

    I'm also doing a savings challenge and wrote about budgeting this Monday. I would encourage you to check it out and consider joining my linky party on Mondays with the challenge of reaching your own savings goals.

  9. So actually I AM on the edge of my seat. We've thought about going to the cash system. We currently put every expense on our card and then pay it off each month. We do pay it off each month, but we probably could save more if we did the cash option. We don't have a budget per se, but we do know we make X money so we can't spend more than that. I'd like to have a real budget and be able to say definitively we spend this much on food, this much on gas, etc.

  10. a friend of mine couldn't handle the idea of cutting up her credit cards as they didn't have much savings. So they literally froze their credit cards in a block of ice in the freezer...if a real true life or death emergency happened they still existed.

  11. Great job! I can't wait to read more on this series. We need to revisit our budget. I'm trying to post my weekly grocery adventures to see if I'm in keeping with our budget. So far so good.

  12. Haha, ya'll are cracking me up with the "I'm on the edge of my seat!" comments. :) I took some pictures of our cash envelopes today for my next budgeting post. ;)

    Miriam, I'm a sucker for the ol' paper and pen!

    Ammie, I'm amazed at ya'lls diligence to balance your checkbook each night. :)

    Heather, the frozen credit cards are too funny. I guess you do what you've gotta do!

  13. It took us a good 4-6 months to get all our categories worked out in the budget. It was amazing how easy it is to forget that satellite radio payment that is once a quarter or the contacts that are twice a year or a million little other things you don't think about on a monthly basis. But once it was dialed in its great. So my advice is to EXPECT the budget not to work for 4-6 months and need constant fine tuning until you get it all figured out.


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